A new economic cycle is set to commence. M&A activity is heating up, admittedly faster than anticipated three months ago. Let us hope it is not a false start. The next M&A cycle in Industrials may well be the one where all those logical deals analyzed over years – whether acquisitions, mergers, JVs or disposals – get finally done, fueled by a cocktail of matured conviction and strategic determination in a world which will not tolerate a lack thereof. If COVID-19 is said to accelerate trends, then the reshaping of portfolios ought to be logically accelerated too, at the expense of incrementalism.
In that context, I thought I would dig out observations based on ‘The Prince’ (c. 1510) by Niccolò Machiavelli. The master piece outlines a number of principles to be followed by rulers as they manage and seek to grow their principalities. It can be read in many ways, one of which is to draw lessons for leadership teams and corporate finance practitioners, including M&A. So without further ado, here are excerpts which I classified by relevant topic, including shareholder activism/defence, post-merger integration and poison pills.
'Prince' is to be generically read as corporate executive (whether male or female), 'soldiers' as employees, and 'people' as shareholders.
Some things never get old.
[All wise princes] must be on their guard not only against existing dangers but also against future disturbances, and try diligently to prevent them
[The prince][…] should never take his mind from [the] exercise of war, and in peacetime he must train himself more than in time of war; […] [He] must also learn the nature of terrains, and know how mountains rise, how valleys open, how plains lie, and understand the nature of rivers and swamps. […] Such knowledge is useful in two ways: first, one learns to know one’s own country and can better understand how to defend it; second, with the knowledge and experience of these terrains, one can easily comprehend the characteristics of any other site that it is necessary to explore for the first time
A wise prince must follow such methods as these and never be idle in peaceful times, but he must turn them diligently to his advantage in order to be able to profit from them in times of adversity, so that when Fortune changes she will find him prepared to resist her
Although you may have the best fortress, they will not save you if the people hate you, for once the people have taken up arms, they never lack for foreigners who will assist them
M&A AND POST ACQUISITION INTEGRATION
The desire to gain possessions is truly a very natural and normal thing, and when those men gain possessions who are able to do so, they will always be praised and not criticized. But when they are not able to do so, and yet wish to do so at any cost, therein lie the error and the blame
There is nothing more difficult to execute, nor more dubious of success, nor more dangerous to administer, than to introduce new political orders. For the one who introduces them has as his enemies all those who profit from the old order, and he has only lukewarm defenders in all those who might profit from the new order. This lukewarmness arises partly […] from the incredulity of men, who do not truly believe in new things unless they actually have a personal experience of them
Although someone may have the most powerful of armies, he always needs the support of the inhabitants to seize a region
When dominions are acquired in a region that is not similar in language, customs, and institutions, it is here that difficulties arise; and it is here that one needs much good luck and much diligence to hold on to them
One of the best and most efficacious remedies would be for the person who has taken possession of [new territories] is to go there to live; This would make that possession more secure and durable; […] By being on the spot, troubles are seen at their birth and can be quickly remedied; […] Moreover, the region would not be plundered by your own officers; the subjects would be pleased to have direct recourse to their prince; thus, those wishing to be good subjects have more reason to love him, and those wanting to be otherwise, more reasons to fear him
The order of things is such that, as soon as a powerful foreigner enters a region, all who are less powerful cling to him, moved by the envy they have against the ruler who has ruled over them. […][The ruler] need only to be careful that they do not seize too much military power and authority. […] Anyone who does not follow this procedure will quickly lose what he has taken, and while he holds it, he will find it full of infinite difficulties and troubles. In the regions they conquered the Romans followed these rules very carefully
Princes […] have discovered more loyalty and more utility in those men who, at the beginning of their rule, were considered suspect than in those who were trusted at first. […] The prince will always easily win the support of those men who have been enemies at the beginning of the principality, the kind of men who must have had support in order to maintain themselves. They are even more obliged to serve him loyally, inasmuch as they recognize the need to cancel the suspicious opinion the prince had of them through their deeds
[…] There is no other way to guard yourself against flattery than by making men understand that by telling you the truth they will not injure you. But when anyone can tell you the truth, you lose respect. Therefore, a prudent prince should follow a third course, electing wise men for his state and giving only them permission to speak truthfully to him, and only on such matters as he asks them about and not on other subjects. But he should ask them about everything and should listen to their opinions, and afterwards he should deliberate by himself in his own way
A prince should always seek advice, but when he wants to, and not when others wish it
A prince must consider it of little account if he incurs the reputation of being a miser, for this is one of those vices that enables him to rule
With time, [a prince] will come to be considered more generous, once it is evident that, as a result of his parsimony, his income is sufficient, he can defend himself from anyone who wages war against him, and he can undertake enterprises without overburdening his people
TIMING FOR ACTION
[The Romans] never approve of what is always on the lips of our wise men today – to reap the benefits of time. Instead, they reaped the benefits of their virtue and prudence; for time brings with it all things, and it can bring with it the good as well as the evil, and the evil as well as the good
BEWARE OF PARTNERSHIPS
King Louis [of France] was brought into Italy because of the ambition of the Venetians who wanted […] to gain for themselves half of Lombardy. […] After having taken Lombardy [with the Venetians] then the King immediately regained the reputation that [King] Charles had lost him: Genoa surrendered; The Florentians became his allies; The Marquis of Mantua, the Duke of Ferrara, [etc.] as well the people of Lucca, Pisa, and Siena, all rush to become his ally. At this point the Venetians could understand the recklessness of the decision they had taken [when partnering with King Louis]. To acquire two towns in Lombardy, they had made the King [of France] master of two thirds of Italy
From this one can derive a general rule which rarely, if ever, fails: that anyone who is the cause of another becoming powerful comes to ruin himself; because that power has been brought about by him either through cunning or by force; and that both of these two qualities are suspect to the one who has become powerful
BUSINESS /OPERATING SYSTEMS
The principal foundations of all states […] are good laws and good armies